The Kamikaze Trade Bill Destroys U.S. Jobs

T he House of Repres entatives has passed a trade bill mandating
retaliation against countries that close their markets to U.S.
goods and that run what the bill calls an "excessive and
unwarranted!'trade surplus with the U.S. These measures were
contained in an amendment prop o sed by Rppresentative Richard
Gephardt, the Nfissouri Democrat. The Senate now will consider its
own trade lepi lation; it is likely that some version of the
Gephardt amendment will be offered on the Iroor. This approach to
trade policy is dangerous and u ltimately could cost millions of
Americans their jobs. At best it is a kamikaze attack on the trade
problem guaranteeing only one thing: destruction of the attacker.

The House bill would require the President to take action to reduce
by 10 percent annually , through quotas and tariffs, the
"excessive" trade surpluses with the U.S. of those countries which
maint- trade barriers to U.S. goods. An arbitrary congressional
formula would define "excessive." Among the many countries affected
by this bill could be Japan, West Germany, South Korea, the
Republic of China on Taiwan, Italy, and debt-ridden Brazil.

U.S. Exports Increased. The trade surpluses with the U.S. of these
countries is not primarily a matter of eir barriers to U.S. goods.
In fact, in the cases of all the countries targeted in the House
bill, U.S. exports have increased over the past five years. The
deficits on the U.S. side are due to a rapid and larger increase in
imports into the U.S., purchased by American consumers. These
countries have not e r ected new trade barriers to the U.S. On the
contrary, during the last five years, the U.S. has restricted its
market r t0quotas, cartels, and other protectionist devices more
than any other maJor country r t0hu Id. If Congress truly seeks
fair trade, it s h ould start at home by requiring the U.S. to
dismantle its self-destructive obstacles to trade. In any case,
Congress should be cautious about assigning undue significance toi
the Ino trade figures. For one thing, U.S. trade fi&ures are
notoriously inaccur a te. In parti ar, U.S. exports are
systematically underestimated, making trade deficits appear worse t
ian they really are. For example, while the U.S. claims a 923.3
billion trade deficit with Q nada in 1986, Canada puts the
fi&ure at $113 billion. To bas e bilateral trade relations on
such questionable numbers is economically irresponsible. Gas
Station Trade Deficit. For another thing, bilateral trade balances
are 'in many ways meaningless. In a world of over 150 trading
countries, it would be economically impossible,

and undesirable, to have 'balanced" trade with each country.
Because each produces different goods and services and has
different import needs, it is normal for a country to run a
permanent trade deficit or surplus with another country. It i s no
more harmful for the U.S. to run a trade deficit with another
country than for an American family to run a "trade deficit"with
its local gas station. Further, the House formula for calculating
which countries have "excessive" surpluses is completely a rbitrary
and without foundation in economic fundamentals. There is no such
thing as an "excessive" trade surplus or deficit with an individual
country. Atte t. t impose such a definition is an attempt to cloak
protectionist actions with a 0 scientific res p ectability. While
they concentrate on the allegedly damaging aspect of trade
deficits, moreover, congressional protectionists fail to explain to
the American people that the dollars earned @y countries that run
surpluses with the U.S. eventually must be s p ent in the U.S.
Exporters to the U.S. cannot spend the dollars they earn in their
own countries. They must use these dollars either to purchase
American goods, to purchase goods from third countries which in
turn use the dollars to buy Americanproducts, o r to invest in
America. To the same extent that the U.S. operates a trading
deficit with the rest of the world, other countries must invest in
the U.S. The U.S., in fact, recently has been a magnet for foreign
capital, which creates U.S. jobs and prosperit y . Part of these
funds has been used to purchase Treasury bills and private
borrowing, taking the pressure off the capital markets. But some
$200 billion has gone into direct investment, in business
expansion, new g factories, and new American o,bs. Japan, for
example, sEusminvested $135 billion in America, with $30 b on in
direct investments and $4.4 billion in stocks. Total Japanese
investment in the U.S., in fact, rose 30 percent in 1986 compared
to 1985. Economic Suicide. One estimate finds that 2.5 to 3 .0
million Americans hold jobs in businesses owned by foreign capital.
Those advocating radical protectionist actions against countries
with large trade surpluses with the U.S. claim that jobs would be
created by increased U.S. exports or reduced foreign i mports. But
they fail to mention the other side of the coin--the fall in
foreign investment that automatically would accompany a reduced
trade balance. If the protectionists succeed, billions of dollars
would flee from the U.S., threatening the jobs of mi l lions of
American workers. It is unrealistic, moreover, to assume that other
countries would not respond to such American legislation by
retaliation. The fact is that the House trade bill violates the
international trade laws signed by the U.S. Independen t
professional economists, liberal and conservative, Democrat and
Republican, have denounced protectionism as economic suicide. And
the press, from the Washington Ppst and New York Times o the Wall
Street Journal , have editorialized on the folly of the Ho u se
approach to trade. Uwmakers who expect political gains from their
irresponsible actions are underestimating the intelligence and the
memory of the American people. Americans know that protectionism
drives up prices, destroys jobs, and stunts economic g rowth. It is
a lesson House and Senate lawmakers would do well to learn. Edward
L Hudgins, Ph.D. Walker Fellow in Economics